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  3. American Economic Journal: Macroeconomics
  4. July 2020
  5. Liquidity Traps and Monetary Policy: Managing a Credit Crunch

Liquidity Traps and Monetary Policy: Managing a Credit Crunch

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Abstract

We study a model with heterogeneous producers that face collateral and cash-in-advance constraints. A tightening of the collateral constraint results in a credit-crunch-generated recession that reproduces some features of the financial crisis that unraveled in 2007 in the United States. We use the model to study the effects, following a credit crunch, of alternative monetary and fiscal policies.

Citation

Buera, Francisco J., and Juan Pablo Nicolini. 2020. "Liquidity Traps and Monetary Policy: Managing a Credit Crunch." American Economic Journal: Macroeconomics, 12 (3): 110-38. DOI: 10.1257/mac.20170040

Additional Materials

JEL Classification

  • E31 Price Level; Inflation; Deflation
  • E44 Financial Markets and the Macroeconomy
  • E52 Monetary Policy
  • E62 Fiscal Policy
  • G01 Financial Crises
  • H63 National Debt; Debt Management; Sovereign Debt
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